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New Look to regroup after restructuring debt

New Look’s refinancing, aimed at reducing its long-term debt by 80%, will put the retailer “on the front foot” in tackling its turnaround strategy, executive chairman Alistair McGeorge has told Drapers.

The retailer this week announced initial agreements for a debt-for-equity swap with lenders to cut its borrowings from £1.35bn to £350m. Under the refinancing, creditors will exchange debt for a proportion of the company’s share capital. Majority shareholder South African investment company Brait will have its stake reduced from 90% to between 18% and 30%.

John Gnodde, CEO of Brait UK, said: “The company needed to address its capital structure that was not sustainable long term and in difficult market conditions. The result of this transaction, if agreed, is that New Look’s debt will be significantly reduced, resulting in a more flexible capital structure and increased liquidity, allowing the company to better navigate the challenging market environment and create a stable operating platform to benefit from a market upturn, as well as drive sustainable value for all stakeholders.”

McGeorge said that following the restructuring, New Look will focus on streamlining its supply chain, improving its ecommerce and product offering, reducing its European footprint and re-entering some UK high streets: “We’re improving our supply chain. You need speed to be able to react and respond, and take fewer risks.

“We’ve already made substantial progress and think we can take a number of weeks out of our supply chain, which means less risk up front and gives us the opportunity to buy back into what we know sells.”

The retailer announced in October that it was closing its 120 stores in China. McGeorge is planning a similar approach in Europe.

“We’ve dealt with China and will be downsizing in Europe. We’re already pretty close with our strategy and will be downsizing in our other overseas areas.”

As of 24 March 2018 New Look had 31 stores in France, 18 in Poland and seven in Belgium.

The plan to close 100 UK stores under its company voluntary arrangement (CVA) “is still the case”, but McGeorge said the retailer may now be considering re-entering certain high streets: “We have a number of towns earmarked that we believe we can get back into fairly easily and landlords will more easily support us because of our balance sheet. On top of that, on around 400 of our stores, we have the flexibility over the next four years to get out of leases, which many of our competitors don’t have.”

New Look’s UK like-for-like sales dropped 5.7% in December 2018 compared with the same month in 2017.

The refinancing does not guarantee smooth sailing for the retailer, however, and the aftermath could be even more difficult, believes retail analyst Richard Hyman: “Restructuring its debt was an absolute essential, but however difficult that was, it’s nothing as to how difficult it’s going to be to recover the business.

“If you look at the value fashion market, it’s really extraordinarily tough and all of those companies cannot grow their revenue lines at the same time.

“The businesses who survive this tough period are going to be the ones that are driving that revenue line.”

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